Your income is one of the most crucial elements of your bankruptcy case. In a Chapter 13 case, it helps determine the size of the monthly payments you must make to creditors, and in a Chapter 7 case, it may determine whether or not you qualify. If your income improves during bankruptcy, the increase must generally be significant and prolonged to affect your Chapter 13 case. The timing of the increase can be important in your Chapter 7 case.
Chapter 13 Process
Chapter 13 bankruptcy is a reorganization of your debts into a manageable payment plan. Your plan can last as long as five years if your income is above your state's median income. During that time, the court requires you to pay your creditors any income you have left over after allowable expenses, known as disposable income. If your disposable income rises, you may have to contribute some or all of that increase to your monthly payment. The court is the final arbiter over whether or not your increase will affect your payment plan.
Chapter 13 Reporting Requirements
Once you enter a Chapter 13 payment plan, you must provide an annual report of your income to the court. Most plans also require you to inform the court independently if your income has risen by a significant amount at any time. While your net income after expenses is likely to change from month to month, the court doesn't require you to report every small change in your income. Since a Chapter 13 case is already administratively complex, the court doesn't need or want additional paperwork for small fluctuations in your income. However, the court, your trustee or any of your creditors can request a change to your plan payment at any time.
Size of Increase
The court can increase your Chapter 13 payment at any time based on your income. A change in your payment may be more likely if your income has increased by a significant amount, which is an unspecified amount determined on a case-by-case basis. As a general guide, an increase of at least 10 percent for at least three consecutive months, net of expenses, may be enough to alter your Chapter 13 payment.
Income and Chapter 7
Your income is the major determinant in whether or not you can file Chapter 7 bankruptcy. Generally, you need an income below the median income in your state. If you anticipate that your income is going to increase in the near future, you must disclose this on your bankruptcy petition at the time you file. About a month after you file, you must meet your case trustee at the Section 341 meeting, also called the meeting of creditors. At that time, your trustee will ask you about your income change and determine whether or not it will have an effect on your Chapter 7 case.
- Bankruptcy Law Network: Chapter 13 Plan Payment May Fluctuate During the Plan
- Cornell University Law School: Title 11 U.S. Code Section 521, Debtor's Duties
- Cornell University Law School: Title 11 U.S. Code Section 341, Meetings of Creditors and Equity Security Holders
- Bankruptcy Law Network: If My Income Increases, Do I Have to Amend My Bankruptcy Petition?
- United States Courts: Chapter 13
- Nolo.com: An Overview of Chapter 13 Bankruptcy
After receiving a Bachelor of Arts in English from UCLA, John Csiszar earned a Certified Financial Planner designation and served 18 years as an investment adviser. Csiszar has served as a technical writer for various financial firms and has extensive experience writing for online publications.